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Nvidia Stock Pops on Earnings Beat and Better-Than-Expected Guidance

By Beth McKenna – Aug 19, 2021 at 10:30AM

Key Points

  • Fiscal Q2 year-over-year revenue and adjusted EPS surged 68% and 89%, respectively.
  • Like fiscal Q2 results, Q3 guidance came in higher than Wall Street expected on both the top and bottom lines.
  • Management said the regulatory process for the Arm acquisition is taking longer than expected.

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Record revenue in the gaming and data center businesses drove growth.

Nvidia (NVDA -1.51%) reported strong fiscal second-quarter 2022 results after the market close on Wednesday, Aug. 18. As with last quarter, the graphics processing unit (GPU) specialist's growth was driven by record revenue in its gaming and data center businesses, which are its two largest platforms.

Shares of the tech stock rose 2.4% in Wednesday's after-hours trading session. The market's positive reaction can be largely attributed to both revenue and earnings beating Wall Street's consensus estimates, and fiscal third-quarter guidance for both the top and bottom lines also coming in higher than analysts had been expecting.

The stock probably would have notched a bigger gain had investors received positive news on the pending Arm acquisition, which has run into some regulatory headwinds.

In 2021, Nvidia stock has returned 45.9% through Wednesday's regular trading session. The S&P 500 has returned 18.2% over this period.

A silhouette of a person's head with digital imagery.

Image source: Getty Images.

Nvidia's key numbers 

Metric

Fiscal Q2 2022

Fiscal Q2 2021

Change

Revenue

$6.51 billion

$3.87 billion

68%

GAAP operating income

$2.44 billion $651 million 275%

GAAP net income

$2.37 billion  $622 million 282%

Adjusted net income

$2.62 billion $1.37 billion 92%

GAAP earnings per share (EPS)

$0.94 $0.25 276%

Adjusted EPS

$1.04 $0.55 89%

Data source: Nvidia. GAAP = generally accepted accounting principles. Fiscal Q2 2022 ended on Aug. 1, 2021.

Wall Street was looking for adjusted EPS of $1.02 on revenue of $6.33 billion. So Nvidia surpassed both expectations, as well as its own guidance. 

GAAP gross margin was 64.8%, up from 58.8% in the year-ago quarter and 64.1% last quarter. Adjusted gross margin landed at 66.7%, up from the year-ago period's 66% and last-quarter's 66.2%.

For additional context, in fiscal Q1, Nvidia's year-over-year revenue, GAAP EPS, and adjusted EPS growth were 84%, 106%, and 103%, respectively.

Platform performance

The gaming, data center, and professional visualization platforms all posted record quarterly sales.

Platform

Fiscal Q2 2022 Revenue

Change YOY

Change QOQ

Gaming

 $3.06 billion

85% 11%

Data center

 $2.37 billion 

35% 16%

Professional visualization

 $519 million

156% 40%

Automotive

 $152 million

37% (1%)

OEM and IP

 $409 million

180% 25%

Total

 $6.51 billion

68% 15%

Data source: Nvidia. OEM and IP = original equipment manufacturer and intellectual property; not a target market platform. YOY = year over year. QOQ = quarter over quarter.

In her CFO commentary, Colette Kress said the gaming-platform's growth was driven by continued strong sales of the GeForce RTX 30 Series, based on the company's Ampere GPU architecture. She attributed the data center's year-over-year increase to the ramp up of Ampere "products into vertical industries and hyperscale customers."

Professional visualization's growth was driven by the ramp up of Ampere GPUs, "with growth led by desktop workstation GPUs." The auto platform's year-over-year revenue growth was "due to the recovery in automotive demand, which was impacted by the pandemic in the prior year," Kress said.

The OEM and IP category's robust 180% year-over-year revenue growth was driven by sales of the company's cryptocurrency mining processor, or CMP, which generated revenue of $266 million.

Launching the CMP was one of the company's two recent steps to address the issue of cryptocurrency miners buying Nvidia's GeForce gaming GPUs to use for mining. This issue "makes it more challenging for gamers to get the company's new GeForce cards," as I wrote in my earnings preview. The second step was "making its new GeForce RTX GPUs less appealing to cryptocurrency miners by lowering their mining performance capabilities."

Indeed, Kress said that more than 80% of the Ampere-based GeForce GPUs the company shipped in the quarter fell into this category. 

Pending Arm acquisition

On the earnings call, Kress gave an update on Nvidia's pending $40 billion deal to acquire leading central processing unit (CPU) chip designer Arm. This deal was announced in September 2020 and originally expected to close in about 18 months, or early 2022:

We are working through the regulatory process, although some Arm licensees have expressed concerns and objected to the transaction. And discussions with regulators are taking longer than initially thought. We are confident in the deal and that regulators should recognize the benefits of the acquisition to Arm, its licensees, and the industry.

As on prior earnings calls, Kress reiterated that Nvidia is committed to keeping Arm's open-licensing business model. Arm supplies technology to many of Nvidia's competitors, some of whom are concerned that the Nvidia-Arm marriage could hinder competition.

Fiscal Q3 guidance easily exceeded expectations

For fiscal Q3, management expects revenue of $6.80 billion, representing growth of 44% year over year. It also guided (albeit indirectly, by providing a bunch of inputs) for adjusted EPS of $1.10, representing growth of 51%.

Going into the release, Wall Street had been modeling for fiscal Q3 adjusted EPS of $1.04 on revenue of $6.53 billion, so Nvidia's outlook easily exceeded both estimates.

A top growth stock 

In short, Nvidia turned in another great quarter. Its stock is one of the best growth stocks in the market today, in my view. The company is a major player in so many high-growth areas, including artificial intelligence (AI), cloud computing, gaming, self-driving vehicles, and virtual reality (VR). 

Beth McKenna owns shares of Nvidia. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool has a disclosure policy.

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